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4. The following firms are all the firms in the industry, listed in order of sales....

4. The following firms are all the firms in the industry, listed in order of sales.

Firm A 18,000

Firm E 2,500

Firm B 14,000

Firm F 2,000

Firm C 7,000

Firm G 1,600

Firm D 3,700

Firm H 1,200

Find the concentration ratio. Is this firm in monopolistic competition or a less competitive market?

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Answer #1

Since 4-firm or 8-firm concentration ratio is not mentioned, we calculated Herfindahl-Hirschman Index (HHI).

Firm Sales % of Total Sales Square of % of Total Sales
(A) (B) = (A) / 50,000 (C) = (B) x (B) x 10,000
A 18,000 36.00% 1,296.00
B 14,000 28.00% 784.00
C 7,000 14.00% 196.00
D 3,700 7.40% 54.76
E 2,500 5.00% 25.00
F 2,000 4.00% 16.00
G 1,600 3.20% 10.24
H 1,200 2.40% 5.76
TOTAL 50,000 HHI = Sum of (C) 2,387.76

Therefore, HHI = 2,387.76

Since HHI > 1,800, this firm is in monopolistic competition.

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